Burnt, But Not Warmed

The Dutch government has ventured on a publication of an important paper. Will our representatives also have enough courage to express their opinion?

In Britain, there is a long-term discourse on the issue of setting a boundary to the power concentration in Brussels. This discussion will probably lead to a referendum on leaving the EU. All in all, Britons have always been considered by the Belgian capital to be mischief-makers who have trouble making friends.

This time, a crucial announcement has been made by the Dutch government. It has released an official document evaluating the power transfer from the national agencies to the European ones. There are 54 policy areas identified in the document where competence should remain within the country. Even though it should be something normal, it is an extraordinary situation when a government of an EU member takes courage to review the official routing of EU policies and draws consequences from this review. The power transfer from the local level to Brussels is practically happening behind closed doors of negotiation rooms and citizens can usually hear just the final result.

However, these decisions are crucial – from the European Stability Mechanism, which is sucking out money from citizens, to miscellaneous ridiculous directives. For example, due to an EU directive, car manufacturers cannot use the traditional air condition refrigerant any more, but only the new one, called R1234yf. The old one allegedly has an impact on global warning. The problem is that the new refrigerant is much more flammable and according to some manufacturers’ tests, the risk of fire during road accidents is higher.

This is a file from the Wikimedia Commons.

There are two new scandals. In Ireland, tapes from September 2008 have leaked. The tapes contain the top management of Anglo-Irish Bank ironically singing the German anthem “Deutschland, Deutschland über alles” after they were informed that the bank will receive an aid (composed mostly of German money). Except the stupid joke, the recording also contains a confession of the capital market manager saying that he pulled the estimation of the amount of the aid needed out of his … It is possible that Irish banks will need another aid to continue working, even though they already received an astronomic amount of money.

Another affair involves Italy. Budget machinations of the Greek government are well known. Recently, machinations of the Italian government have also been revealed. Using derivative operations in the 90s, Italian government has artificially decreased its deficit level to fulfil the eurozone’s entering criteria. Nowadays, the consequences of these operations are manifesting themselves and could possibly cause losses of up to 8 billion euros. However, considering the Italian debt, which is running over 2000 billion euros, this does not look as particularly horrible amount. By the way, in those times the Italian finance minister was the same person as the recent president of the ECB, namely Mario Draghi. We can only hope that he is able to do better calculations now.

Even though 8 billion is just a drop in the ocean, the same cannot be said about the overall condition of the Italian economy. The second largest Italian bank has warned their top clients in a private letter that within six months Italy is possibly going to ask the EU for an aid. In the case of a potential rescue of the 3rd largest Eurozone economy, the previous rescues could be considered only a pre-match.

In the years 2008-11, the EU used 1/3 of its economic power on the rescue of banks (they are still not rescued though) and even euro politicians are beginning to understand it is not possible to help their comrades keep heads above water forever. After the rehearsal on Cyprus, they decided to formulate new bank rescue tactics. According to the new proposal, it will be primarily shareholders and junior creditors who will feel an impact of losses. Only after their participation gets over 8% of bank debts, will EU governments and their tax payers intervene. However, there are two pitfalls. At first, the proposal has to be approved by the Parliament, and even if it is approved, it will come into force no sooner than in 2018. Enough time for EU “zombie banks” to completely suck out euro citizens’ wallets.

They will have their opportunity. Finance ministers of EU members have arranged this week (of course, only after a wide public debate, as we are in the EU used to…) that it will be allowed to use the ESM also for direct bank rescues. 60 billion out of its capacity has been allocated for this purpose. The condition is that the national government has to help the bank to increase its capital ratio (the Tier 1) to the level of 4.5% and subsequently it has to participate in the rescue process with 20% of expenses. These allocated sources can also be used retroactively for previous bailouts. In Dublin, they can only celebrate. The possibility of transferring Irish debts to the account of the whole eurozone was one of the main goals of Irish presidency.

But watch out – after 56 years, Frenchmen are going to implement debt cuts! Despite their talks about savings, the French government has just been raising taxes until now and their economy has paid them back. However, in 2014 the first budget cuts since 1958 are going to be implemented! This year’s budget of 395 billion euros is planned to be lowered by 1.5 billion next year. Even though the cut is equal to less than 0.5% of French governmental expenses, it is still better than nothing.

And last but not the least, we are going to take a look at the lives of Members of the European Parliament. The working method SISO (Sign In, Sod Off) is very popular among them. A Dutch reporter, Tom Staal, has caught the Czech communist Ransdorf and the Italian socialist Baldassarre when they were using it. The Youtube video has already been deleted, but the funny Czech slapping part is still available here.

Though, the reporter should ask himself a question, whether it is worse when Euro MPs are working or when they are not. I hope you will not get euro-slapped!

Martin Vlachynský joined INESS in 2012 after period of external cooperation. He graduated from the Faculty of Economics and Administration at Masaryk University in Brno (Czech Republic) and earned master degree on the University of Aberdeen (UK). He used to work several years as web marketing and social networks specialist.
Martin's field of interest envelopes economic policies, energetics, and natural resources.